Emerging market equities have grabbed the headlines this year, but investor appetite for bonds, too, is enjoying a risk-on resurgence. Data from EPFR, the fund flow monitor, show that EM fixed income funds saw inflows of $1.16bn in the week to Wednesday – the most since August – adding to $907bn of inflows in the previous week.
EM equity fund inflows were strong, too, at $3.53bn. Compare that with developed market equity funds, which surprised analysts with a small outflow.
According to Demetrios Efstathio at RBS, there are no signs yet that the optimism on EM funds is fading:
We stay firm on our view from last week. We cannot see what will stop the positive momentum this week. Positive performance awakes investors that sit on the sidelines who start to worry about being left behind. A virtuous mini-cycle of positive market sentiment, strong inflows and positive returns for investors is now in place.
And the EPFR’s figures did not take into account the release of US unemployment figures on Friday. Bourses across the world have surged after jobless numbers in the world’s largest economy dropped to a near three-year low.
Hard currency bond funds made up the majority – $866m – of the burgeoning fixed income inflows. At 1.6 per cent of assets under management, Efstathio says that’s “their largest inflow of the past few years.”
And after a dismal previous four months, local currency bond funds celebrated inflows of $296bn. “The excellent performance of the asset class in January should trigger further inflows in the coming weeks,” he adds.
Lots to look forward to, then.
Related reading:
Brazilian bonds and equities: rally time, beyondbrics
Record-breaking start to 2012 for Asian bonds, FT
Emerging market currencies off to flying start, FT
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